Is Best Buy Co., Inc. (NYSE:BBY) A Smart Choice For Dividend Investors?
Best Buy Co., Inc. (NYSE:BBY) has pleased shareholders over the past 10 years, by paying out dividends. The stock currently pays out a dividend yield of 3.0%, and has a market cap of US$18b. Let’s dig deeper into whether Best Buy should have a place in your portfolio.
View our latest analysis for Best Buy
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
Is its annual yield among the top 25% of dividend-paying companies?
Does it consistently pay out dividends without missing a payment of significantly cutting payout?
Has dividend per share amount increased over the past?
Is is able to pay the current rate of dividends from its earnings?
Will it be able to continue to payout at the current rate in the future?
How well does Best Buy fit our criteria?
The company currently pays out 35% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 38% which, assuming the share price stays the same, leads to a dividend yield of 3.2%. Furthermore, EPS should increase to $5.65.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. BBY has increased its DPS from $0.56 to $2 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.
In terms of its peers, Best Buy generates a yield of 3.0%, which is high for Specialty Retail stocks but still below the market’s top dividend payers.
Next Steps:
Taking into account the dividend metrics, Best Buy ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential aspects you should further research:
Future Outlook: What are well-informed industry analysts predicting for BBY’s future growth? Take a look at our free research report of analyst consensus for BBY’s outlook.
Valuation: What is BBY worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether BBY is currently mispriced by the market.
Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
